The historical record contains financial crises from all over the world starting with the Dutch Tulip Bulb bubble in 1636 or Tulipmania. The authors note that a recurring pattern is for increased investor optimism as economies expanded. As the economy expanded credit growth accelerated and increasing numbers of individuals start to invest or speculate for short term capital gain, mania. This continues until some trigger event results in the bubble bursting, panic and a crash.
Big Ten Financial Bubbles
The book covers the following big ten financial bubbles:
- Dutch, Tulip Bulb Bubble 1636
- British, South Sea Bubble 1720
- French, Mississippi Bubble 1720
- US, Late 1920s Stock Price Bubble 1927-1929
- Mexico, surge in bank loans to Mexico and other developing countries 1970s
- Japan, real estate and stocks bubble 1985-1989
- Finland, Norway and Sweden bubble in real estate and stocks 1985-1989
- Thailand, Malaysia, Indonesia and several other Asian countries 1992-1997
- Mexico, surge in foreign investment 1990-1993
- US, stocks 1995-2000
Topics of Financial Crisis
Each financial crisis is examined in its historical context by a particular topic and the in the process the authors explore the anatomy of a typical financial crisis and the speculative manias. These manias are then explored using further topics of excessive credit growth that results in euphoria and an economic boom until the market reaches a critical stage.
Often when the bubble bursts there is a contagion effect that is explored along with the discovery of frauds or swindles that become exposed by the downturn. Finally, the authors review policy responses, ideas of domestic and international lenders of last resort and the lessons of history.
Lessons of History
Whilst the pattern plays out slightly differently in each case with different triggers for the collapse the pattern is still visible and banks inevitably have a strong part to play. The banks are necessary to the credit expansion cycle and then during the subsequent collapse banks contribute to the retrenchment through capital loss and bankruptcy.
Further, in an inter connected world a financial crisis in one country can impact another country both favourably and unfavourably. Lenders of last resort have helped to stabilise markets but the rise in fiat currencies has also resulted in more frequent crises.
Manias, Panics and Crashes
This is an interesting book that draws on history to help understand financial manias, panics and crashes. The structure of the book around topics rather than individual bubbles leads to the appearance of repetition but this is simply drawing on bubble events from a different perspective. This should not detract from what is a good book.
Manias, Panics, and Crashes: A History of Financial Crises, 5th Edition by Charles P Kindleberger and Robert Aliber. Copyright 2005 Wiley. ISBN: 978-0-471-46714-4
Roger Lever - Early career was in Treasury Banking and this led to my interest in financial investment, especially the stockmarket. Enjoy reading widely ...
